Government tweaks sourcing norms for Apple to set up stores in India

India has reached out to Apple on renewing its application to set up wholly-owned stores in the country after having been rebuffed the first time round over local-sourcing exemptions that the company had sought, officials said. With the rules for single-brand retail having since been tweaked, the company has a better chance of getting those exclusions, albeit for a three-year period.

Apple has been informed about the changes in sourcing conditions relating to ‘cutting edge technology’ in single-brand retail, the officials told ET. “The policy is in the public domain for anyone to access. However, a call was made to the company. Apple now needs to tell us if it wants to enter India under the new norms,” said a senior government official who did not wish to be named.

Apple couldn’t immediately be reached for comment. The iPhone maker’s application to set up its iconic stores was approved last month but the government did not relax the domestic sourcing condition.

Under the changes made last month, single-brand retailers selling ‘state of the art’ or ‘cutting edge technology’ products will not have to meet this condition for up to three years from the commencement of operations.

Following that, the rules will apply to them. This stipulates that for the first five years, average domestic sourcing has to be at 30% and subsequently the rule will have to be met annually.

The government feels this is incentive enough for Apple to start retailing in India, which is seen as crucial for the company as markets elsewhere get saturated.

India was among the few bright spots for the US-based company after global quarterly sales slumped for the first time in 13 years in quarter ended March.

Apple won’t need to submit a fresh application if it wants to avail of the exemption from sourcing for the three-year period, two senior officials said. It will, however, need to convey its request formally to the government.

Apple currently sells its products in India through a network of franchisee-owned stores. Domestic sales crossed the $1billion mark in FY15.

CEO Tim Cook is said to have discussed manufacturing and retailing of Apple products in India with PM Narendra Modi on a recent visit.

Cook told Apple’s India team during the trip that setting up company-owned stores is vital for Apple's longterm plans since these would set benchmarks in sales and services.

In the FDI norms announced in November 2015, the Department of Industrial Policy and Promotion (DIPP) had announced a waiver of the sourcing condition for singlebrand retailers that introduce cutting edge technology.

A three-member panel including the DIPP secretary, a member of the Niti Aayog and a representative of the administrative ministry had backed Apple’s case for exemption.

However, it was felt that such exemptions cannot be made for companies unless the term ‘cutting edge’ was clearly defined or there were conditions attached to the term and the finance ministry had denied the exemption.

Under the rules, any foreign investment beyond 51% in single-brand retail requires 30% of the value of goods to be sourced from India, preferably from micro, small and medium enterprises, village and cottage industries, artisans and craftsmen.

The government had allowed 100% foreign direct investment in single brand retail in January 2012.